UPDATE 1-Banco Popular Espanol tests market for high trigger CoCo

LONDON, July 10 (IFR) - Banco Popular Espanol is braving a
relatively shaky market backdrop on Thursday to sell its first
high trigger euro contingent convertible (CoCo) deal,
strengthening its capital base ahead of the upcoming stress
tests.

The Spanish lender has begun marketing the perpetual
non-call five Additional Tier 1 transaction at 7%-7.25%,
according to a source. The bond will convert to equity if the
bank's Common Equity Tier 1 ratio falls below 7%. That ratio is
currently at 10.28%.

By selecting a 7% trigger, the deal will count towards the
capital metrics to be applied by the European Central Bank in
the stress tests, although a source at BPE said the aim of the
issuance was to comply with Basel III regulations.

Credit Agricole, Deutsche Bank, Goldman Sachs, Morgan
Stanley and UBS are lead managers on the issue, which is
expected to be 500m-750m in size.

The deal has emerged after the AT1 market came under
pressure in the past day, with some issues dropping as much as
three quarters of a point.

"It's not the greatest market backdrop today but I can
understand why BPE would want to get the deal done," said a
syndicate banker.

"It looks like they need this deal for the upcoming stress
tests and seeing as the AT1 has been selling off over the past
week, today might be their last window for a while."

This is BPE's second venture into the CoCo market and
follows the sale of a 500m AT1 that now trades around 6% - just
over half the 11.5% yield the bank paid to get the deal done in
October 2013.
(Reporting by Aimee Donnellan; editing by Alex Chambers, Julian
Baker)